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Definition

Today, this statement is more commonly called a "Flow of Funds Statement" but is also known as the "Cash Flow Statement". It aims to show where the cash in the business came from and how it was allocated. This is done from the two balance sheets from the beginning and end of the accounting period. Sources of funds include sales and other incomes (usually called, collectively, turnover) while allocations are usually the payment of creditors in respect of expenses incurred. The Cash flow statement can be broken down into three areas: operations, investments and financing. It does not take into account profitability or seek to apply the "matching principle" (whereby the expenses of a period are off-set against the incomes of the same period). Depreciation does not involve a movement of cash and so it is added back for the purposes of cash flow.

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